The Market Called Duolingo an AI Casualty. Its Users Just Said Otherwise
Duolingo, Inc. (NASDAQ: DUOL ) was the market's favorite way of selling the idea that free AI tutoring makes a paid language app obsolete. For a while, the market bought it. The stock fell more than 50% over the past 52 weeks, erasing billions in market value from its peak. But something unexpected happened later. On August 18, 2026, DA Davidson upgraded Duolingo to Buy with a target lifted to $160. The shares jumped about 7%. But the tell isn't the upgrade; it is the underlying user data.
Short interest sits near 20.72% of shares, reflecting heavy skepticism from institutional traders. And despite the recent upgrade of the stock, 19 of 27 analysts still rate it Hold. The institutional interest in Duolingo has risen modestly from 37 to 39 in the second quarter of 2026, according to the Insider Monkey database. On the other hand, despite the 67% decline, Duolingo is trading at approximately 21.6 times forward earnings.
Duolingo, Inc.'s (NASDAQ:DUOL) engagement data is breaking the AI-casualty narrative. But it has still not removed the tension a short seller will press. The DAUs are growing 23% while bookings rise just 8%, so user activity is significantly outrunning revenue. Additionally, the full-year revenue growth of about 16% is down from nearly 40% a year ago. If the third-quarter DAUs fall below 20%, or if bookings stay stuck near 8%, it would weaken the thesis.
While we acknowledge the potential of DUOL as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock .
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